Banks Bring Jobs to London as Finance Pays Most Tax in U.K.

By Simon Clark, Ambereen Choudhury and Gavin Finch -
Mar 23, 2011

Goldman Sachs Group Inc. (GS) employs
almost as many people in London today as it did in 2007, before
Lehman Brothers Holdings Inc. filed for the biggest bankruptcy
in history, sparking a global recession.

Investment banks in Europe’s financial capital are adding
jobs, helping to bolster headcounts at law and accounting firms
across London, as the rest of Britain struggles to recover from
the worst economic contraction since the 1930s. Chancellor of
the Exchequer George Osborne has little alternative except to do
all he can to keep companies such as Barclays Plc and HSBC (HSBA)
Holdings Plc from leaving London.

“We want London to remain a global financial center, and
one that will continue to flourish and grow because of the
employment it brings,” Treasury minister Mark Hoban said at a
conference in the City of London last week. “We want to see
more employment in the U.K., not less and I think a blooming
financial services sector can help deliver that.”

The industry accounted for about 10 percent of Britain’s
economic output in 2009, up from 7.7 percent in 2006, and paid
the most in corporation tax last year, according to the
government. Financial firms generated about 11 percent of the
nation’s tax revenue in the year ended March 2010, contributing
53.4 billion pounds ($87 billion) in corporation, sales and
employee taxes, according to a report by PricewaterhouseCoopers
LLP for the City of London Corporation.

Budget Speech

“We want the City of London to remain the world’s leading
center for financial services,” Osborne told lawmakers in
Parliament today as he presented his budget. Still “prosperity
must be shared across all parts of the U.K.”

The nationwide unemployment rate based on ILO standards
rose to 8 percent in the three months through January from 7.9
percent in the three months ended October. In London’s City and
Canary Wharf districts, the number of workers will rise to
318,000 in 2011, from 315,000 in 2010 and 305,000 in 2009,
according to the Centre for Economics & Business Research Ltd.

Accounting firm KPMG LLP plans to increase its London
headcount to 14,000 from 11,000 in the next three years, while
PricewaterhouseCoopers raised the number of graduate and
internship openings it has in 2011 to a record of more than
1,600. Deloitte & Touche LLP plans to add about 1,500 employees
in the U.K. this year.

‘Sense of Normality’

The number of partners hired at London-based law firms rose
28 percent in the first seven months of 2010 from the prior
year, according to data from Motive Legal Consulting and
LegalMoves.

“A sense of normality is returning to the market,” said
Mark Cameron, chief operating officer of London-based recruiter
Astbury Marsden. “I don’t think you will see the outright
bullishness of 2007 where the sky was the limit and everyone
kept growing because they had to.”

RBS (RBS), the largest lender owned by the government, expects to
post its first annual profit in 2011 after three years of
losses, Chief Executive Officer Stephen Hester said last month.
Lloyds Banking Group Plc (LLOY) may almost double pretax profit in 2011
to 4.1 billion pounds, according to the median estimate of 21
analysts surveyed by Bloomberg.

Banking Commission

U.K. taxpayers have invested 45.5 billion pounds in RBS for
an 83 percent stake and 20 billion pounds in Lloyds for a 41
percent holding.

The increase in jobs occurred as Barclays, HSBC and
Standard Chartered said last year that government attempts to
force their breakup or raise taxes risked triggering an exodus
from London.

John Vickers, chairman of the government-backed Independent
Commission on Banking, ruled out a full split of the lenders
when he said in January that his panel was reviewing other ways
to protect consumer deposits. The banking panel will publish its
draft plans for the industry on April 11.

Goldman Sachs

Prime Minister David Cameron is raising taxes and embarking
on budget cuts that will slash 330,000 public-sector jobs during
the next four years. As employment in finance rebounds to within
10 percent of 2007’s peak, the government’s emphasis switched
from scrutinizing bankers’ pay, bonuses and tax contributions to
counting on the banks, which required about 1 trillion pounds
from taxpayers to shore them up, to lead the recovery.

Britain’s four biggest banks have said total bonuses for
U.K.-based employees will be lower than last year and pledged to
boost business lending in a bid to end what RBS’s Hester has
called “banker bashing.”

Goldman Sachs employs about 7,500 people in Europe -- 6,200
of them in London -- according to Michael Sherwood, 45, co-head
of the international unit and one of the New York-based firm’s
vice chairmen. In 2007, Goldman Sachs had about 8,000 people in
Europe, including consultants.

RBS employed about 17,600 people at its securities unit in
2007 and 18,700 in 2008 after the Edinburgh-based lender
absorbed ABN Amro Holding NV’s investment bank. After falling to
17,900 in 2009, the total has since risen to 18,700, company
filings show.

Barclays Capital

Barclays Capital boosted its headcount last year as it
expanded the equity and mergers-advisory teams outside the U.S.
following its purchase of Lehman’s North American operations.

“I would like to see U.K. financial companies employing
more people, with a change of emphasis from making the most
money possible to providing the best service with the highest
integrity,” said private equity dealmaker Jon Moulton, who
started his latest company, Better Capital Ltd., in 2009.

Jezz Farr, a spokesman for London-based HSBC, and Barclays
spokesman Jon Laycock declined to comment on hiring. HSBC is
Europe’s biggest bank and Barclays is Britain’s third largest.

Not every financial institution has increased headcount.
UBS AG (UBSN), Switzerland’s biggest bank, employed 6,634 people in the
U.K. as of Dec. 31, down 25 percent from 2007, according to the
Zurich-based company’s quarterly filings.

The number of people registered with the U.K.’s Financial
Services Authority as having a so-called approved function was
at 172,077 in 2008, and fell to 166,420 in 2009 and 161,175 in
2010, the fewest since 2004.

‘Buoyant Mood’

“There is a more buoyant mood,” said Anthony Thomson,
chairman of Metro Bank Plc, a consumer bank he co-founded with
U.S. investor Vernon Hill. Metro Bank opened its first London
branches last year. “The siege mentality of the past few years
is receding and people are starting to say, ‘How can we create
more value, how can we create new businesses?’”

Bankers are softening their rhetoric about leaving, with
Barclays’s Diamond, 59, telling lawmakers in January that London
is the “premier financial center in the world.” HSBC said
March 7 it would prefer to keep its headquarters in London amid
speculation the company is preparing to relocate, possibly to
Hong Kong.

London is home to about 240 overseas banks, including the
European bases for JPMorgan Chase & Co. (JPM) and Morgan Stanley.
About 80 percent of Europe’s hedge funds and about 60 percent of
the region’s private equity firms are based in Britain. The U.K.
also accounts for about 37 percent of global foreign exchange
trading and 46 percent of all trading of over-the-counter
interest rate derivatives, according to lobby group TheCityUK.

Basel Rules

As regulators such as the Basel Committee on Banking
Supervision introduce rules aimed at preventing a repeat of
Lehman’s collapse, banks are hiring people with regulatory and
reporting expertise, Astbury Marsden’s Cameron said. The so-called Basel III rules, endorsed by world leaders in November,
require banks to have common equity equal to at least 7 percent
of assets weighted according to riskiness, up from 2 percent.

“Regulatory and reporting requirements are hot topics at
the moment,” Cameron said. “They are on very tight timeframes
to implement those, so there’s quite a focus in the banks on
dealing with that change.”

Job opportunities for people working in compliance rose 26
percent in the three months ended Jan. 31, while those in
consulting increased 29 percent, according to eFinancialCareers,
a London-based careers website. Openings were up 41 percent in
equities and 30 percent in fixed income, eFinancialCareers said.

No Demand

“Anything to do with structured credit has disappeared,”
said James Chappell, a financial-services industry strategist at
Olivetree Securities Ltd. in London. “There is no demand for
that type of product.”

Former London bankers are starting companies to profit from
new regulation or areas where rivals have retreated such as
lending. Vincent Dahinden opened a London-based firm in December
2008 to advise banks on derivatives and risk management as the
U.K. government bailed out his former employer, RBS. Six months
earlier, he left the Edinburgh-based bank, where he oversaw
exotic derivatives traders.

Solum Financial Partners LLP may double its team of six
former bankers by the end of the year, Dahinden said in an
interview. Solum Financial values derivatives contracts when
banks dispute prices and advises lenders on creating systems to
manage the risk of their trading partners defaulting.

“We have recently advised a European bank” from “a
governance, IT architecture, modeling, hedging, accounting,
regulatory and best-practice perspective,” Dahinden said. This
is “an area of hiring” opportunity within banks, he said.

Rothschild Backing

Haymarket Financial LLP, the London-based provider of
specialist financing to companies that’s part-funded by Jacob Rothschild’s RIT Capital Partners Plc, has hired about 30 people
since it opened in 2009.

“Right now there are many more borrowers out there than
lenders,” Haymarket CEO Tim Flynn said in an interview. “We’d
be better off with more businesses like ours starting up because
there is a need for more capital on reasonable terms.”

Stephen Welton, a partner at JPMorgan’s former private
equity unit, was last month named CEO of Business Growth Fund
Plc, a 2.5 billion-pound fund backed by the U.K.’s six biggest
banks.

“Coming out of a recession is the ideal time to think
about creating new capital sources for smaller businesses,”
Welton said in an interview. “In 10 years time, I hope to look
back at having created the funder of the future big businesses
of Britain.”

Electronic Market

Nasir Zubairi wants to create a new source of funding for
U.K. companies. The former RBS and ICAP Plc electronic-trading
specialist is starting London-based EuroTRX Ltd., a trade-receivables exchange, to help speed payment of invoices to
companies with 1 million pounds of annual sales.

Zubairi wants to create an electronic market where new
investors such as hedge funds and asset managers can buy
invoices at a discount to face value from companies that
sometimes wait 100 days for payment. The firm may expand to 30
people in a year, he said.

“Smaller businesses have a big problem raising capital,”
Zubairi, 35, said in an interview. “We are trying to solve that
by making invoice finance more accessible and transparent.”

Zubairi may be part of a wave of London financial
technology innovators, including risk-management company Hyper
Rig Ltd. and Funding Circle Ltd., an online market for people to
lend directly to small businesses, said Julie Meyer, founder of
London-based investment and advisory firm Ariadne Capital Ltd.

‘Spotting a Gap’

“New financial technology companies are emerging with
entrepreneurs who see things that were either done wrong in the
last credit cycle or who are spotting a gap,” Meyer said.

Entrepreneurs are even making money from people who want to
quit the industry. Former Ernst & Young LLP consultants Dom
Jackman and Rob Symington started a blog that turned into
recruitment website Escape The City. They’ve placed finance
sector workers with a beach lodge in Mozambique, a Mongolian
investment company and a Ugandan non-profit.

“We felt like our jobs just didn’t matter to anyone,”
said Symington, 27. “So we started a website to connect with
people who felt like us and wanted an exciting alternative.”